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January home sales jump 6.7% despite a record low supply

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In front of an Arizona house, a sign advertising for sale is displayed.

Justin Sullivan | Getty Images

The National Association of Realtors reported that January saw a 6.7% increase in sales of properties previously owned. It was an annualized seasonally adjusted rate of 6.5 millions units. Wall Street was not expecting this. The January 2021 sales were 2.3% less than the January 2021.

Record low supply of homes on the market fell 16.5% from last year. Only 860,000 homes were available for sale as of the 31st January. This inventory would be exhausted in 1.6 months at current sales rates. An equilibrium market is one that has a 4- to 6-month supply. This is also an all-time low.

“Seller traffic remains very low. It suggests that inventories are struggling to turn the corner. According to Lawrence Yun of the Realtors, chief economist, multiple bidding battles are continuing.

Strong demand and tight supply drove January’s median home sale price to $350,000. This is an increase of 15.4% over January 2021.

The fact that most sales activity occurs at the upper end of this market is a factor in skewing the price. The lowest end of the market has the most supply. The price of homes between $100,000 to $250,000 was down 23% compared with a year earlier, but sales for homes between $750,000-$1 million rose 33%. The number of homes sold for more than $1 million was up by 39%.

The average time it takes for a home to sell is 19 days. In comparison to 21 days on the market last year, which was when the market was strong, it was only 21.

These sales were based upon contracts that were signed between November and December before the rise in mortgage rates. During that period, the average fixed rate for a 30-year loan was 3.2%. According to Mortgage News Daily, it’s now just above 4%.

This year’s share of cash-only sales increased to 27%, from 19% the previous year. This may partly be due to an increase in investor participation to 22%, from 15% last year.

Yun said, “Investors really are rising out and this could be why we’re experiencing a spike in home sales.”

According to Danielle Hale (chief economist at Realtor.com), “The big question is whether rising interest rates will reduce housing demand, which stems in large part from a demographic tsunami of young households at key age points for homebuying.” Our expectation is that sales of homes will continue at an elevated level through 2022. Post-pandemic shifts such as increased flexibility in the workplace allow buyers to broaden their geographical search and to find affordable housing.

Newly-built houses sales, which can be counted only by closings and contracts that were signed in the month, increased nearly 12 percent between November and December. Due to the low number of available homes, more buyers are choosing new construction. Due to labor and supply issues, construction is not keeping pace with customers.

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